Is art a commodity?

By admin, October 29, 2014

Speculation, flipping, bid rigging and guarantees all serve to bolster the global art market but at what cost to transparency and lower tier galleries?

‘Christies had a $US745M (AUD$ ) evening sale this May in less time than it took to watch a basket ball game,’ said Kelly Crow, The Wall Street Journal’s art market journalist, adding, ‘How much higher can we go?’

Crow joined Kathleen Hayes, host of Bloomberg Radio’s The Hays Advantage, at a recent talk at New York Academy of Arts moderated by artist and author Sharon Louden. The topic was Art as a Commodity, and discussed were the thorny topics of speculation, taste-makers, bid rigging and guarantees.

Hayes quoted: ‘Last year $US64 billion of art and antiques were sold at auction houses in U.S., a 150% increase over the past 10 years.’ Adding that there is an estimated $US2 trillion of art in private collectors hands.

It was a rise matched only with statistics defining a booming Chinese market; one that we have not been isolated from in Australia.

‘Millionaires in China grew 90% between 2007 and 2012, and the number billionaires grew 400%,’ quoted Hayes.

However, these staggering numbers are unfathomable to Australians; and as I sit in Miami writing this with an impending art fair soon to descend upon the city – not one, but 19 – London’s Frieze Week dominating the global arts press last week as the most recent barometer to the market, and Art Taipei to open next week (31 October) – one can not help question the veracity and power that this art market wields, and how perceptions are brokered against the reality of careers and peripheral markets such as our own in Australia.

Is art a commodity?

When we talk of art as a commodity immediately ranks are drawn: to one side falls the top tier taste makers and speculators and, to the other, artists and gallerists who are trying to survive outside of the radar of this selective beast.

Hayes reminded us that ‘art doesn’t trade very often, unlike other commodities such as wheat, oil or gold, it is relatively illiquid.’ It is perhaps more comparable to real estate; a market concept that Australians have no qualms in embracing.

‘One reason why people like to buy art as an investment, is because it is hedged against inflation. If inflation starts rising it will hurt bonds, stocks etc… but art, as a hard asset, is something that will tend to rise as well, so it serves its financial purpose,’ said Hayes.

Crow added: ‘It’s a weird hybrid between what Kathleen (Hayes) is calling an alternative asset and a security. You hear collectors talk about artists saying, “we are buying in depth”; it’s like going long on the market. There is this belief that an artist is going to withstand the brutalness of art history.

‘It’s cold logic then to think of art as a commodity, but what you are really seeing is a whole generation of peers and people older and wealthier than you deciding whether art history is going to remember you or not,’ said Crow.

But is it a true representation or reality? And should we – outside that band of global collectors – agitate for greater transparency, as Hayes asked: ‘Who is going to the disruptor to the art market?’

To put the picture in perspective, Crow explained: ‘At a sale you might see 5 or 6 people who collect Warhol, deal in Warhol. If they (buy and) set the price at three times the high estimate, essentially they are telling the world, “if you want this piece you have to pay more than me”.’

Is then it all just a playground for the rich?

And for those at the other end of the spectrum who believe art is neither a product to be traded like a commodity or gambled on, but rather viewed as an investment in human capital and our cultural heritage – where do they sit within this market perception of value?

Decoding results

Crow championed that you can learn a lot by attending auctions. ‘I take a clipboard and score them like a ballgame.’

She used the example of a Monet, which you might read about selling for $20M, but there is always a back-story that says more about the market. Crow explained: ‘(By attending) I can tell you how many people are in the room and how many are bidding; how many are on the phones and the different languages, which will determine where the interests are; the level they come in and the level they stop, if a dealer is bidding on their artist. You get some sense in real time what that world-aperture for that work is worth.’

‘Take that same sale and you have a guarantee on it. The seller says to the auction house “I will let you sell my picture but you need to promise me $19M”. They might use their own money and cut me a check if it doesn’t sell – which is not really what an auction house wants to do – or they go out and find investors who are prepared to pay $19M and promise to bid.

‘It comes up for sale and the auction calls 16…17…18 and the room is quiet. You all know what going on, then 19 – bam, sold! It is celebrated in the paper the next day. Only the people who showed up to sale know the real story,’ said Crow.

Melanie Gerlis, The Art Newspaper’s market journalist, tweeted (17 October) that, “Sotheby’s has $US392.6M exposure to guarantees (up from $51.4m end June) going into auction season.”

Are guarantees a sign of safeguarding against that, or are we witnessing the earliest hint that confidence is wavering?

So is it all froth? How healthy is the current market?

Tate Triennial curator Nicolas Bourriaud’s made the assertion that: ‘2008, the year of the Lehman Brothers collapse, marked the symbolic end to Post-modernism, just as the 1973 oil crisis prompted the end of Modernism.’

‘The deregulation of oil prices in 1979 by the Carter Administration, and the subsequent energy crisis saw dependable growth from the art market… Investment in art as a stable commodity has often occurred during periods of recession,’ points out writer Dan Zimmerman.

Hayes and Crow echoed this view with regard to today’s economic climate.

Hayes said that while there was a turn-down post 2008, the art market did not completely crash like the tradition market which “cratered”. She predicts that the US Federal Reserve is going to start pulling back.

‘Yes the market is frothy, but even with this pulling back, prices will never go back to where they were – some of that inflated value stays. It will stop rising as quickly, but art will still sell, and at very high prices. I don’t think we will see a complete collapse,’ said Hayes.

Then art is a sound investment.

Crow agreed: ‘I don’t think the party is going to dock. I do predict a little bit more volatility coming into the fall (U.S. November and February auctions). China is a huge factor. They bought 5 of the top 10 priced pieces in Christies contemporary sale (in May), so if they hadn’t shown up, what would that have done to the prices? That is where the wildcard factor comes in.’

Commenting on London’s auctions earlier this month, and setting the tone for Frieze Week which ended 19 October, Suzanne Gyorgy, head of art advisory and finance at New York-based Citigroup Inc.’s Citi Private Bank told Bloomberg: ‘They’re not as robust as their February or June sales, but we’ve become jaded if something’s not $50 million.’

The auction houses, they reported, sold 231.2 million pounds ($373 million) of art, indicating that the European market was in step with America’s May sales.

‘In top end collectors a real gloominess and dread began to pervade in 2008, and you’d hear it in the cocktail party chatter; “I’m just going to hold this round out. I love my art and will just sit with a moment.” I am not hearing that yet. When you do that is when you start to worry,’ cautioned Crow.

‘When the air is thin at that level, one or two bidders make a huge difference whether a piece passes the bar. What I would start looking for, is if the prices are just barely inching over their estimates, ’ said Crow.

‘It is a food chain, so when the market rolls it effects everyone up and down the line just in different ways. It is a very big beautiful chessboard,’ Crow added.

Is more transparency needed?

Louden reminded that there is little regulation or transparency – globally – across the art market. It is the only market where million dollar deals are done with a handshake over lunch.

‘There are all these forces you have to pass through, among them the top 300-400 collectors in the world who are the taste makers who decide,’ said Crow.

‘After them come the curators, who slavish track what the collectors are buying because they want to know which shows will get people through the doors, to get support and get a buzz. Everyone is really circling each other.’

Activities such as “flipping” and “turbo-collecting”- the aggressive and quick uptake of an artist work from a speculative position – can create false stabilities and market trends. Like Crow’s Warhol example, Geris sites the sale of Israel Lund’s abstract work Untitled 2013, which ‘sold for the fourth time in less than a year at Christie’s New York in May (2014), increasing in value from $7,500 to $125,000.’

Gerlis, reporting from Frieze last week, said: ‘Market speculation can offer rich rewards, but in the long term, it may do artists more harm than good.’

How then do we find the balance in this constant roll call of auctions and art fairs?

Author of the book Talking Prices, Olav Vethuis observed: ‘Art fairs constitute their own mini-economy, and are now tournaments of value, or status contests.’

Crow’s advice in this market: ‘You have to ask yourself the really brutal question how fresh or original or revolutionary you are trying to be with your art, and don’t be afraid to zig – catch the pendulum when you can and confront complacency with curiosity.

‘I think that there is nothing more refreshing than zigging when every one else is zagging – eventually everyone will catch up. Everyone was desperately trying to be de Kooning and then Donald Judd just landed – boom deal with that!’

Hayes concluded: ‘People are afraid to like something that they don’t know is cool to like. (Therefore) it is very important to find the person that people don’t know yet – the brilliant idea – and as a presenter (and commentator on the market) it is just as important to get that person and expose them, and not just the big name.’

Does the average “Joe” care what happens with the art market?

Crow said that the fact that the art market is booming has moved, ‘Mom and Pop America to want art on their wall, and to want a connection with an artist; to go to an art fair and have a discussion with a dealer. This is making a lot of art possible.’

Hayes points out that the returns on owning art over time has an average return of about 4%, which when compared to stocks at 6% is not so lucrative. She added that a recent study looking at the “psychic return” of owning the art increased that average return to 28% a year.

Crow added: ‘(Today) Jonny Public has access to art scenes around the world and can follow a bunch of artists (and curators) online and get a sense of what is happening. If you see a bunch of Collectors from the Guggenheim blowing on about Chile on their instagram, you don’t have to wait until the Museum retrospective on Chile in ten years time to know it is a good bet. You can do homework in real time.’

‘Jonny Buyer can also do homework into an artist in Singapore, for example, to get a whiff of sales. Technology in that sense helps,’ said Crow.

While at the power end of the market little is changed in the brokerage of careers, yet the implosion of art fairs and online bidding has demarcated the art market terrain no longer the exclusive playground of the rich or status seeking new millionaires.

We still have a long way to go. But with greater normalisation entering the art market the stronger its guarantee and sustainability.

First published on ArtsHub, October 2014